The high cost of standardization How to reward innovators

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Thomas Freeman
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1 The high cost of standardization How to reward innovators Dr. Matteo Sabattini CTO, Sisvel Group London, October 13,

2 THE SISVEL GROUP 30+ YEARS OF EXCELLENCE IN LICENSING 100+ ENGINEERS, LICENSING AND LEGAL PROFESSIONALS 8 SUBSIDIARIES IN 3 CONTINENTS 110+ SISVEL GROUP S PATENT PORTFOLIOS LICENSE AGREEMENTS 2

3 THE SISVEL GROUP On September 16, BEN BEUNE joined the Sisvel Group as the new Executive Vice President and Chief Licensing Officer 3

4 IPRS & STANDARDS HOW COULD THEY WORK TOGETHER? PATENTS are an exclusive right granted for an invention (monopoly) STANDARDS are intended for collective use and are essential for the wide adoption of new technologies in the marketplace (interoperability) 4

5 R&D SPENDING AND PARTICIPATION AT STANDARDS ACTIVITIES 5

6 R&D SPENDING AND PARTICIPATION AT STANDARDS ACTIVITIES 6

IMPACT OF STANDARDS (I) Standards: Unnoticed factor for business results Participation increases market share Avoiding costs by being informed early SME gains market share through influence in

7 IMPACT OF STANDARDS (I) Standards: Unnoticed factor for business results Participation increases market share Avoiding costs by being informed early SME gains market share through influence in standardization Savings on product testing Transaction costs reduction through standardization Formation of strategic alliances Increase product safety and decrease participants liability Businesses not only reduce the economic risk of their R&D activities by participating in standardization, but can also lower their own R&D costs. The businesses surveyed responded that these costs increase at a considerably slower rate when they participate in standardization than if they do not [ ]. The expense of R&D can be reduced when the participants in standards work make their results generally available, and research need not be duplicated. Sources: 7

8 IMPACT OF STANDARDS (II) Case studies based on the experiences of 11 companies operating in a variety of business sectors in 10 countries, shows that implementing standards can provide economic benefits from between 0.5% and 4% of their annual sales revenue. Examples include: German electricity switchgear supplier Siemens cites cumulated benefits on earnings before interest and taxes from using standards of between 1.1% to 2.8%; Nanotron Technologies, a German information and communications technology company, achieved 14% cost savings and 19% increase in sales revenue by using standards, equivalent to almost 33% of overall annual sales revenue; PTT Chemical Public Company in Thailand saved USD 9.4 million in 2010 from increased plant reliability; Impact of standards on total earnings before interest and taxes of Festo Brasil, a Brazilian automation technology provider, totaled BRL 4.37 million, corresponding to 1.9%of company turnover. Source: 8

possibilities (70%); Exposure to new ideas (70%); Competitive advantage over companies not present (68%); Exposure to industry

9 IMPACT OF STANDARDS (III) Principal benefits of participation reported by SMEs: Increased reputation of the company (88% agreed); Greater networking opportunities (82%); Increased contact with potential customers (74%); Increased partnership possibilities (70%); Exposure to new ideas (70%); Competitive advantage over companies not present (68%); Exposure to industry best practice (62%); Better competitive intelligence (62%). Source: 9

10 IMPACT OF STANDARDS (V) Literature abounds [1] on the positive effects on R&D activities and patenting arising from [2] participation in standards ([1] Since only a small fraction of patented technology is accepted, competition in R&D by participants is very high. Source: WIPO statistics database, October Source: 10

11 RECENT DEBATE ON IP POLICY Declarations vs. Evaluations of essentiality: Some industry participants are supporting more strict declaration procedures, even suggesting a requirement to evaluate patents through a third party expert. Smallest Saleable vs. Functional Unit: Smallest saleable unit theory has been suggested for SEPs, failing to fully recognize the value added by the standardized technology. Proposed changes in SSOs IPR policies and their impact: Instead of trusting dubious assumptions and loud arguments, the debate on patent policy should include all stakeholders. 11

12 DECLARATIONS AND EVALUATIONS Neither required nor useful to pursue such an evaluation system; Hugely burdensome in terms of time and money but would not provide any kind of certainty that the evaluated patents would not be challenged as non-essential; Potential licensees perform due diligence and want to see claim charts and detailed technical explanations just like in any bilateral licensing negotiation (involving non- SEPs); Evaluation to join patent pool facilitation and licensing is purely a precaution: there is no antitrust requirement (the only requirements aim at avoiding competing technologies and bundling of SEP and non-sep); 12

13 SMALLEST SALEABLE UNIT vs. vs. 13

14 SMALLEST V. FUNCTIONAL UNIT Everyone would agree that the innovators of the mobile wireless industries should be remunerated for the benefits they bring to the society and the world economy; Clearly the value is not provided only by the chipset, but by the entire phone connected to and operative on the mobile network; Royalty rates should be calculated per functional unit, hence recognizing the value added by the licensed technology and the investments behind the development of said technology; Such functional unit cannot be the chipset, as it is unable to function independently in the hands of a user, although sophisticated and skilled; At the same time, the functional unit needs to recognize the real value added by the patented technology, but not more. 14

15 WHY ARE UNIVERSITIES WORRIED? 15

16 WHY IS IRWIN JACOBS WORRIED? 16

technology If their contribute is not recognized, some of them, to the detriment of innovation, may decide to

17 IPRS & STANDARDS Many companies and innovators will weight participation to standardization activities also in light of the potential Return on Investment (ROI) that they could generate by allowing access to their patented technology If their contribute is not recognized, some of them, to the detriment of innovation, may decide to avoid participation in the standardization process and revert to proprietary, closed solutions or trade secrets. 17

18 CONCLUSIONS Standardisation and Intellectual Property Rights (IPRs) encourage innovation and facilitate the dissemination of technology. The Commission supports the view that standards should be open for access and implementation by everyone. IPRs relevant to the standard should be taken into consideration in the standardisation process. This would help ensure a balance between the interests of the users of standards and the rights of owners of intellectual property. European Commission - Benefits of Standards: 18

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IS STANDARDIZATION FOR AUTONOMOUS CARS AROUND THE CORNER? By Shervin Pishevar

IS STANDARDIZATION FOR AUTONOMOUS CARS AROUND THE CORNER? By Shervin Pishevar Given the recent focus on self-driving cars, it is only a matter of time before the industry begins to consider setting technical